By Bob Friedrich
If you are a co-op or condominium owner or private homeowner, you should know that the city Department of Finance has released its annual assessed valuation numbers for all real estate in New York City.
Most folks are not aware of this, but this annual exercise by the DOF is done every January and these numbers are used to calculate your annual property taxes. These numbers can be found online at nyc.gov. If the city gets its numbers wrong, your family’s budget will be affected for years.
The process is so complicated and convoluted for co-ops and condos that the City Council passed a bill last year requiring the DOF to print a guide in layman’s terms explaining how it is done. Probably the greatest threat to the fundamental affordability of New York’s co-op and condo communities is the city’s failed property tax and valuation system. A year and a half ago, this system imposed a single-year, double- and triple-digit valuation increase on Queens co-ops and condos.
Figuring out the property valuation so the DOF can apply the tax rate that has been authorized by the Council for a co-op or condo should not be vexing, but should be a simple task, since tens of thousands of such units are sold every year.
But co-op and condos are not valued at fair market selling prices. Under New York law, they are valued as if they are fictional rental properties that generate fictional rental profits. In fact, the DOF is supposed to compare co-ops and condos with comparable residential rental properties to help it determine taxable valuations.
In 2011, when I discovered it was using commercial properties to do those comparisons, I contacted the New York Post, which did an exposé on the story. In response, the DOF called it a “computer glitch.” Then in 2012, city Comptroller John Liu audited the DOF’s methodology and uncovered significant problems with its new valuation system, which is the system in place today.
For homeowners, the valuation formula is simple and based on actual selling prices and then adjusted by a statutory formula to get to the final valuation number.
But co-ops and condo valuations are determined differently. Since the values are not based on selling prices, the DOF has to figure out what an imaginary buyer would pay for the entire co-op or condo complex if it were for sale, a rental property and a profit-making entity. This sounds crazy and it took the DOF 17 pages of jargon to explain it in “layman’s terms.” I have read it, so let me summarize in a single sentence how the DOF establishes the value of your co-op or condo:
The DOF creates a hypothetical investment, with a false rate of return, on a fictional rental building that an imaginary person would buy at a made-up price, based on profits it never earned and calculated on fabricated income and expense reports never produced.
So when the valuations are released, no one should be surprised when a hypothetical, based on a fiction, does not reflect reality.
Bob Friedrich is president of Glen Oaks Village and an civic leader.